Saving in cash may be totally personally rational, but from a macroeconomic perspective, from which the government must view this activity, cash savings in banks do nothing to aid economic activity in the economy.
Investing in shares is much the same. Almost no company now issues shares to support its trading activity. Any new shares are issued in mergers and acquisitions. Most companies are actively buying share back to inflate their prices.
So, almost all shares in issue provide no new funds to promote real investment in the economy. Buying them is just gambling in financial markets by any other name.
Bonds make more sense, except governments do not need them to fund their activities, as quantitative easing proved. So they too are just savings mechanisms. And whilst corporate bonds can fund investment, most fund mergers.
Cash deposits fund loan books, of course. This is why banks pay interest on deposits – they need them to fund their loan book. So that bit is toss.
Now think of that pensions contract which Spud so loves to talk about. Folk today invest to create assets which make the future richer, thereby creating the surplus which the young of the future will pay out in pensions.
Pensions eat capital. You do not, cannot, gain a useful pension income purely from the dividends or interest on your savings. The income simply isn’t enough. Rates of 2 or 3% – just as an example – would mean that to gain a £20k a year pension you’d need a £650k pension pot. Median income in the country is £32k. So, in a 40 year working life you’ve got to save 50% of annual income to fund your pension – ignoring earnings within the pension for simplicity’s sake.
That doesn’t work and it most certainly doesn’t work with his “high interest” 1% bonds.
So, those young actually have to buy those assets created off the old in order for the capital to be eaten in the drooling years. Which means that the young have to do some goodly part of their savings in trade in extant assets.
Spud has entirely misunderstood that pensions contract that is. It must be possible to liberate – spend, eat – the capital in the fund to pay the pension. Therefore there must be a market in second hand instruments.
QED. And the entire collapse of his scheme. Whether it’s in bonds or shares the same is true. There must be a buyer of the instrument in order for the capital to be available.
Man’s an idiot, but then we knew that.